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Item 7. Management’s Discussion and Analysis

2025-02-24 compared with 2024-02-27 · 48 added, 50 removed, 284 unchanged (26% of the section changed)

37 unchanged sentences

Contracts and Revenue Recognition

We generally recognize estimated contract revenue and resulting income over time based on the measurement of the extent of progress toward completion using total costs incurred as a percentage of the total estimated project costs for individual performance obligations.

We generally recognize contract revenue and resulting income over time based on the measurement of the extent of progress toward completion using total costs incurred as a percentage of the total estimated project costs for individual performance obligations.

We review contract price and cost estimates periodically as the work progresses and reflect adjustments proportionate to the percentage-of-completion in income in the period when those estimates are revised.

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$ 36,770 $ 24,813 $ 24,405

(1) During the year ended December 31, 2023, our Government Operations segment results were favorably impacted by contract adjustments related to a nuclear operations contract which resulted in an increase in operating income of $22.5 million.

(1) During the year ended December 31, 2024, no adjustments to any one contract had a material impact on our consolidated financial statements.

During the year ended December 31, 2023, our Government Operations segment results were favorably impacted by contract adjustments related to a nuclear contract which resulted in an increase in operating income of $22.5 million.

Our Government Operations segment also recognized favorable adjustments totaling $27.9 million as a result of the successful negotiation of change orders related to cost growth that was driven by out-of-scope changes associated with the manufacture of non-nuclear components.

During the year ended December 31, 2022, our Government Operations segment results were negatively affected by contract adjustments for cost growth related to the manufacture of non-nuclear components which resulted in a decrease in operating income of $11.3 million.

During the year ended December 31, 2021, no adjustment to any one contract had a material impact on our consolidated financial statements.

Contracts may be modified at the request of our customer or initiated by us to amend all or part of an existing contract, including contract type.

Depending on the nature of the modification, we consider whether to account for the modification as an adjustment to the existing contract or as a separate contract.

Modifications to our contracts are generally accounted for as if they were part of the existing contract as these modifications are not distinct from the existing contract and accounted for as a cumulative adjustment to revenue.

Although we continually strive to improve our ability to estimate our contract costs and profitability, adjustments to overall contract costs due to unforeseen events could be significant in future periods.

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We utilize actuarial and other assumptions in calculating the cost and benefit obligations of our pension and postretirement benefits.

The assumptions utilized in the determination of our cost and obligations include assumptions regarding discount rates, expected returns on plan assets, mortality and health care cost trends.

The assumptions utilized in the determination of our cost and obligations include assumptions

regarding discount rates, expected returns on plan assets, mortality and health care cost trends.

The assumptions utilized represent our best estimates based on historical experience and other factors.

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Government contracts.

For the years ended December 31, 2023, 2022 and 2021, our CAS

pension costs attributed to U.S.

For the years ended December 31, 2024, 2023 and 2022, our CAS pension costs attributed to U.S.

Government contracts totaled $20.5 million, $13.6 million and $11.7 million, respectively.

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Consolidated revenues increased 8.3%, or $207.3 million, to $2,703.7 million in the year ended December 31, 2024 compared to $2,496.3 million in 2023, due to increases in revenues in our Government Operations and Commercial Operations segments of $154.0 million and $57.6 million, respectively.

Consolidated operating income increased $34.5 million to $383.1 million in the year ended December 31, 2023 compared to $348.6 million in 2022.

Consolidated operating income decreased $2.5 million to $380.6 million in the year ended December 31, 2024 compared to $383.1 million in 2023.

Operating income in our Government Operations and Commercial Operations segments increased $5.5 million and $9.3 million, respectively.

These increases were partially offset by higher Unallocated Corporate expenses of $13.8 million.

These increases were more than offset by an increase in Unallocated Corporate expenses of $15.8 million when compared to the prior year.

Government Operations

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Revenues increased 7.5%, or $151.7 million, to $2,183.0 million in the year ended December 31, 2024 compared to $2,031.3 million in 2023.

The increase was driven by higher volume in the manufacture of nuclear components for U.S.

Government programs, resulting in an increase of $100.0 million when compared to the prior year.

The increase was primarily driven by higher volume in the manufacture of nuclear components for U.S.

Government programs of $138.7 million when compared to the prior year.

Continued growth in design and engineering work executed by our advanced technologies business, particularly in the defense market, resulted in additional revenues of $62.2 million.

We also experienced higher revenues associated with our uranium processing and downblending operations of $58.6 million.

Operating income increased $38.2 million to $374.7 million in the year ended December 31, 2023 compared to $336.5 million in 2022.

The increase was due to the operating income impact of the changes in revenues noted above.

These increases were partially offset by a decrease in revenues associated with our downblending operations as well as a decrease in revenues caused by the timing of long-lead material procurements of $36.5 million and $24.7 million, respectively.

Operating income increased $3.2 million to $377.9 million in the year ended December 31, 2024 compared to $374.7 million in 2023, primarily driven by the operating income impact of the changes in revenues noted above.

Commercial Operations

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Revenues increased 12.4%, or $57.6 million, to $524.0 million in the year ended December 31, 2024 compared to $466.3 million in 2023.

The increase was primarily related to higher levels of in-plant inspection, maintenance, modification and refurbishment services of $24.1 million and an increase in revenues in our medical radioisotopes business of $14.6 million.

We also experienced higher volume in our nuclear components manufacturing and fuel handling businesses.

These increases were partially offset by decreased revenues in our fuel fabrication business.

The increase was primarily related to higher revenues in nuclear components, medical radioisotopes, fuel handling and fuel fabrication, partially offset by lower revenues related to on-site refurbishment work when compared to the prior year.

Operating income increased $9.3 million to $46.8 million in the year ended December 31, 2024 compared to $37.5 million in 2023.

The increase was primarily due to the operating income impact of the changes in revenues noted above in addition to lower restructuring-related expenses when compared to the prior year.

These increases were partially offset by the operating margin impact caused by a shift in our project and product line mix.

In particular, our field services business experienced a considerable increase in volume associated with large scale, long-term construction projects in support of major refurbishment and plant life extension projects in Canada.

The increase was primarily due to the increase in revenues noted above as well as a favorable shift in our product mix which was partially offset by a $4.4 million increase in expenses associated with due diligence and restructuring-related activities when compared to the prior year.

Unallocated Corporate

Unallocated Corporate expenses increased $14.9 million to $44.1 million in the year ended December 31, 2024 compared to $29.2 million in 2023.

The increase was primarily due to increases in healthcare costs totaling $8.7 million in addition to higher compensation related expenses.

During 2023, we undertook several initiatives to transform our current information technology infrastructure which resulted in an increase in expense of $2.1 million.

These increases were partially offset by a decrease in legal and consulting costs associated with due diligence activities when compared to the prior year.

During the third quarter of 2023, we undertook several initiatives to transform our current information technology infrastructure and to improve the effectiveness of our digital framework.

These initiatives are expected to continue into 2026 and accounted for increases in expense of $9.5 million for the year ended December 31, 2024.

We also experienced an increase in legal and consulting costs associated with due diligence activities of $4.5 million for the year ended December 31, 2024.

These increases were partially offset by a decrease in unallocated healthcare costs when compared to the prior year.

Other Income (Expense)

During the year ended December 31, 2023, other income (expense) decreased $27.5 million to a loss of $61.7 million compared to a loss of $34.2 million in 2022.

Included in other income (expense) are components of net periodic benefit cost, which include mark to market adjustments due to our immediate recognition of net actuarial gains (losses) for our pension and postretirement benefit plans which changed to a loss of $20.9 million during the year ended December 31, 2023 compared to a gain of $4.0 million for the year ended December 31, 2022.

This was caused by a decrease in pension income of $40.6 million which was partially offset by a decrease in losses related to mark to market adjustments totaling $15.8 million.

In addition, we experienced an increase in interest expense of $10.6 million in 2023 when compared to the prior year due primarily to an increase in the weighted-average interest rate on outstanding borrowings under our Credit Facility, as defined below.

During the year ended December 31, 2024, other income (expense) increased $29.8 million to a loss of $31.9 million compared to a loss of $61.7 million in 2023.

Included in other income (expense) are components of net periodic benefit cost, which include mark to market adjustments due to our immediate recognition of net actuarial gains (losses) for our pension and postretirement benefit plans which changed to a gain of $0.8 million during the year ended December 31, 2024 compared to a loss of $20.9 million for the year ended December 31, 2023.

This was caused by a decrease in losses related to mark to market adjustments totaling $20.2 million.

In addition, we experienced a decrease in interest expense of $7.6 million in 2024 when compared to the prior year due primarily to a decrease in borrowings coupled with a decline in the weighted-average interest rate on outstanding borrowings under our Credit Facility, as defined below.

Provision for Income Taxes

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Our effective tax rate was 19.0% for the year ended December 31, 2024 compared to 23.4% for the year ended December 31, 2023.

Our effective tax rates for the years ended December 31, 2023 and 2022 were higher than the U.S.

Our effective tax rate for the year ended December 31, 2024 was lower than the U.S.

corporate income tax rate of 21% primarily due to increased benefits from U.S.

federal research and development tax credits.

Our effective tax rate for the year ended December 31, 2023 was higher than the U.S.

corporate income tax rate of 21% primarily due to state income taxes within the U.S.

and the unfavorable rate differential associated with our Canadian earnings.

and the unfavorable rate differential associated with our non-U.S.

See Note 5 to our consolidated financial statements included in this Report for further information on income taxes.

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The Credit Facility requires interest payments on outstanding loans on a periodic basis until maturity.

We are required to make quarterly amortization payments on the Term Loan in an amount equal to (i) 0.625% of the initial aggregate principal amount of the Term Loan on the last business day of each quarter beginning the quarter ending March 31, 2023 and ending the quarter ending December 31, 2024 and (ii) 1.25% of the initial aggregate principal amount of the Term Loan on the last business day of each quarter ending after December 31, 2024, with the balance of the Term Loan due at maturity.

We may prepay all loans under the Credit Facility at any time without premium or penalty (other than customary Term SOFR breakage costs), subject to notice requirements.

We were required to make quarterly amortization payments on the Term Loan in an amount equal to 0.625% of the initial aggregate principal amount of the Term Loan on the last business day of each quarter beginning the quarter ending March 31, 2023 and ending the quarter ending December 31, 2024 and are now required to make quarterly amortization payments in an amount equal to 1.25% of the initial aggregate principal amount of the Term Loan on the last business day of each quarter ending after December 31, 2024, with the balance of the Term Loan due at maturity.

We may prepay all loans under the Credit Facility at any time without premium or penalty (other than customary Term Secured Overnight Financing Rate ("SOFR") breakage costs), subject to notice requirements.

The Credit Facility includes financial covenants that are evaluated on a quarterly basis, based on the rolling four-quarter period that ends on the last day of each fiscal quarter.

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Senior Notes due 2028

We issued $400 million aggregate principal amount of 5.375% senior notes due 2026 (the "Senior Notes due 2026") pursuant to an indenture dated May 24, 2018, among the Company, certain of our subsidiaries, as guarantors, and U.S.

Bank National Association, as trustee.

On July 15, 2021, using cash on hand and borrowings under the Former Credit Facility, we redeemed the Senior Notes due 2026 at a redemption price equal to 102.688% of the principal amount, resulting in an early redemption premium of $10.8 million and the write-off of deferred debt issuance costs totaling $4.2 million.

These charges were recorded in our consolidated statement of income during the year ended December 31, 2021 as components of Other – net and Interest expense, respectively.

Senior Notes due 2028

We issued $400 million aggregate principal amount of 4.125% senior notes due 2028 (the "Senior Notes due 2028") pursuant to an indenture dated June 12, 2020 (the "2020 Indenture"), among the Company, certain of our subsidiaries, as guarantors, and U.S.

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The Senior Notes due 2028 will mature on June 30, 2028.

We may redeem the Senior Notes due 2028, in whole or in part, at any time on or after June 30, 2023 at a redemption price equal to (i) 102.063% of the principal amount to be redeemed if the redemption occurs during the 12-month period beginning on June 30, 2023, (ii) 101.031% of the principal amount to be redeemed if the redemption occurs during the 12-month period beginning on June 30, 2024 and (iii) 100.0% of the principal amount to be redeemed if the redemption occurs on or after June 30, 2025, in each case plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

We may redeem the Senior Notes due 2028, in whole or in part, at any time on or after June 30, 2024 at a redemption price equal to (i) 101.031% of the principal amount to be redeemed if the redemption occurs during the 12-month period beginning on June 30, 2024 and (ii) 100.0% of the principal amount to be redeemed if the redemption occurs on or after June 30, 2025, in each case plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

The 2020 Indenture contains customary events of default, including, among other things, payment default, failure to comply with covenants or agreements contained in the 2020 Indenture or the Senior Notes due 2028 and certain provisions related to bankruptcy events.

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We may redeem the Senior Notes due 2029, in whole or in part, at any time on or after April 15, 2024 at a redemption price equal to (i) 102.063% of the principal amount to be redeemed if the redemption occurs during the 12-month period beginning on April 15, 2024, (ii) 101.031% of the principal amount to be redeemed if the redemption occurs during the 12-month period beginning on April 15, 2025 and (iii) 100.0% of the principal amount to be redeemed if the redemption occurs on or after April 15, 2026, in each case plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

At any time prior to April 15, 2024, we may also redeem up to 40.0% of the Senior Notes due 2029 with net cash proceeds of certain equity offerings at a redemption price equal to 104.125% of the principal amount of the Senior Notes due 2029 to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

In addition, at any time prior to April 15, 2024, we may redeem the Senior Notes due 2029, in whole or in part, at a redemption price equal to 100.0% of the principal amount of the Senior Notes due 2029 to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date plus an applicable "make-whole" premium.

The 2021 Indenture contains customary events of default, including, among other things, payment default, failure to comply with covenants or agreements contained in the 2021 Indenture or the Senior Notes due 2029 and certain provisions related to bankruptcy events.

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We have posted surety bonds to support regulatory and contractual obligations for certain decommissioning responsibilities, projects and legal matters.

We utilize bonding facilities to support such obligations, but the issuance of bonds under those facilities is typically at the surety's discretion, and the bonding facilities generally permit the surety, in its sole discretion, to terminate the facility or demand collateral.

Although there can be no assurance that we will maintain our surety bonding capacity, we believe our current capacity is adequate to support our existing requirements for the next 12 months.

In addition, these bonds generally indemnify the beneficiaries should we fail to perform our obligations under the applicable agreements.

We utilize surety bond facilities to support such obligations, but the issuance of surety bonds under those facilities is typically at the surety's discretion, and the surety bond facilities generally permit the surety, in its sole discretion, to terminate the facility or demand collateral.

Although there can be no assurance that we will maintain our surety bond capacity, we believe our current capacity is adequate to support our existing requirements for the next 12 months.

In addition, these surety bonds generally indemnify the beneficiaries should we fail to perform our obligations under the applicable agreements.

We, and certain of our subsidiaries, have jointly executed general agreements of indemnity in favor of surety underwriters relating to surety bonds those underwriters issue.

As of December 31, 2023, bonds issued and outstanding under these arrangements totaled approximately $114.6 million.

Similarly, we have provided letters of credit to governmental agencies and contractual counterparties to support regulatory and contractual obligations for certain decommissioning responsibilities, projects and legal matters.

We utilize our Revolving Credit Facility and a bilateral letter of credit facility to support such obligations, but the issuance of letters of credit under our bilateral letter of credit facility is at the issuer’s discretion, and our bilateral letter of credit facility generally permits the issuer, in its sole discretion, to demand collateral if the issuer does not otherwise have the benefit of the collateral under our Credit Facility.

As of December 31, 2024, surety bonds issued and outstanding under these arrangements totaled approximately $278.7 million.

Similarly, we have provided letters of credit and bank guarantees to governmental agencies and contractual counterparties to support regulatory and contractual obligations for certain decommissioning responsibilities, projects and legal matters.

We utilize our Revolving Credit Facility and a bilateral letter of credit facility to support such obligations, but the issuance of letters of credit and bank guarantees under our bilateral letter of credit facility is at the issuer’s discretion, and our bilateral letter of credit facility generally permits the issuer, in its sole discretion, to demand collateral if the issuer does not otherwise have the benefit of the collateral under our Credit Facility.

Although there can be no assurance that we will maintain our bilateral letter of credit capacity, we believe our current capacity, together with capacity under our Revolving Credit Facility, is adequate to support our existing requirements for the next 12 months.

As of December 31, 2023, letters of credit issued and outstanding under our bilateral letter of credit facility totaled approximately $36.7 million, and such letters of credit are secured by the collateral under our Credit Facility.

As of December 31, 2024, letters of credit and bank guarantees issued and outstanding under our bilateral letter of credit facility totaled approximately $33.7 million, and such letters of credit and bank guarantees are secured by the collateral under our Credit Facility.

Cash, Cash Equivalents, Restricted Cash and Investments

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Total $ 91,180 $ 91,111

Our working capital increased by $39.0 million to $442.8 million at December 31, 2023 from $403.8 million at December 31, 2022, primarily attributable to increases in cash and cash equivalents resulting from improved billing and collection cycles as well as the receipt of progress payments which were partially offset by the timing of accounts payable.

Our working capital increased by $13.0 million to $455.8 million at December 31, 2024 from $442.8 million at December 31, 2023, primarily attributable to the change in income taxes receivable and prepaid expenses which was partially offset by the timing of project cash flows.

Our net cash provided by operating activities increased by $44.7 million to $408.4 million in the year ended December 31, 2024, compared to $363.7 million in the year ended December 31, 2023.

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Our net cash used in investing activities decreased by $1.1 million to $154.6 million in the year ended December 31, 2024, compared to $155.6 million in the year ended December 31, 2023.

The decrease in cash used in investing activities was primarily attributable to a decrease in purchases of property, plant and equipment of $47.0 million and the $46.7 million acquisition of Dynamic and Cunico in the prior year.

In addition, we experienced an $11.5 million decrease in investments in equity method investees.

Our net cash used in financing activities increased by $183.3 million to $169.4 million in the year ended December 31, 2023, compared to cash provided by financing activities of $14.0 million in the year ended December 31, 2022.

The increase in cash used in financing activities was primarily attributable to a reduction in net borrowings of long-term debt of $181.3 million which was partially offset by a reduction in repurchases of common stock of $20.0 million.

No single item had a significant impact on the change in cash used in investing activities.

Our net cash used in financing activities increased by $83.4 million to $252.8 million in the year ended December 31, 2024, compared to cash used in financing activities of $169.4 million in the year ended December 31, 2023.

The increase in cash used in financing activities was primarily attributable to a reduction in net borrowings of long-term debt of $75.0 million and an increase in repurchases of common stock of $20.0 million.

At December 31, 2024, we had long-term investments with a fair value of $10.6 million.

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See Item 5 of this Report for additional share repurchase information.

As discussed in Note 2 to our consolidated financial statements included in this Report, on January 3, 2025, we completed the acquisition of A.O.T., for approximately $105.5 million, subject to certain working capital adjustments.

In addition, on December 27, 2024, we entered into an agreement to acquire Kinectrics for approximately CAD 782.7 million, including the assumption of Kinectrics' net pension and debt liabilities, and estimated transaction expenses.

The Kinectrics acquisition is targeted to close in the middle of 2025 at which time we expect to make a cash investment of approximately $525.0 million U.S.

dollar equivalent.

We expect cash requirements totaling approximately $7.8 million and $1.2 million for contributions to our pension plans and other postretirement benefit plans, respectively, in 2025.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis